July 29, 2011

Are we learning yet?

The fortunes of the country’s 150 richest people have grown by almost 20 per cent in one year but they are still calling for the easing of constrictions around wealth creation.

The National Business Review yesterday published its annual Rich List, showing that the combined wealth of New Zealand’s richest has ballooned from $38.2 billion to $45.2 billion – the highest total ever.

“What emerged again and again was the need for a regulatory and operational environment that’s conducive to wealth creation,” Ms Read said.

“Eliminating excessive regulation, easing constrictions and freeing up the entrepreneurial spirit were regarded as essential to enabling wealth creation.”

Jeweller Sir Michael Hill, worth $245 million, told NBR: “Could not the Government give us a little freedom to be able to make common sense decisions for ourselves?”

John McVicar, managing director of a forestry group that puts his family’s worth at $70 million, said economic policy should be based on reducing costs for business and increasing productivity and revenue.

That’s fine. If you ask any selected cohort of people what the government’s policy settings for driving economic growth should be, most of them will (a) have no idea, so (b) answer that the most important thing to do is to have policies that advantage the members of that cohort.

The problem is when people mistakenly think that Sir Michael Hill’s expertise in setting up jewellery franchises means he knows anything whatsoever about macroeconomics, and that he isn’t just advocating deregulation out of pure self-interest in the hope that various suckers will be gullible enough to endorse or even implement his ‘advice’ and make him even richer.

Because we know from incredibly bitter experience that deregulation is not a driver of economic growth. We carried out massive deregulation for twenty years, and we’re routinely celebrated as the most deregulated, freest, best country in the world in which to do business – but instead of sustained economic growth, this reform led to catastrophic market failures like the ’87 share market collapse, leaky homes and the finance company debacle, all of which destroyed far more wealth than the deregulation created. And at the same time, robustly regulated economies like Australia and the Northern European welfare democracies left us for dead.

Of course, it left a tiny handful of individuals much, much richer so they’re all in favor of more of the same, but anyone still listening to these people is an idiot.

Yep, an experiment with deregulation that went to far on some things, but we also have problems with too much regulation. Difficult to pick the right things to regluate hard, and the right things to not stifle, and how to keep bureaucratic overhads to a minumum.

It seems like there’s a lot of us who aren’t learning yet – “anyone still listening to these people is an idiot”.

There are many things conspiring against Labour, there must be for them to be continually performing poorly in polls and for getting so much negative media coverage. Labour are the only party that can rescue the country from financial ruin, and they are the only party that can eliminate poverty and get everyone into employment with a decent wage and a fair tax rate.

This is despite a stagflating economy, falling real incomes for most New Zealanders, 155,000 unemployed, an insane monetary policy that has seen the de-industrialisation of our economy in favour of enriching foreign money speculators, a corrupt transport policy and an energy policy that consists of putting their fingers in their ears, shutting their eyes and going “lalalalalalalala” realllllly loudly.

The other morning on NatRad the first story on the 6.50am business news was a bank economist declaring good times are here, and the second report was that businesses are taking longer than ever to pay thier bills, so to be fair the collective disconnect is all pervading.

Of course, it may or may be not be a coincidence that as far as our celebrity obsessed B grade TV “news” media is concerned the unemployed don’t exist, the poor are invisible, the economies health is measured by middle class consumption, child malnutrition is something that happens in the third world and the most important thing in the world is to not upset captain panic pants lest he stop having dinner with you.

At least that Herald article also mentioned NZ’s already highly-ranked by international standards in terms of business freedom. It may not have connected the dots, but it drew them on the page, which is a start.

Sanctuary – everything I wanted to say.
Danyl – Great post – nail on ther head. What’s the odds on reading an editorial along the lines of your post, in any paper in New Zealand in the next 6 weeks, months, or years?

“we also have problems with too much regulation” – compared with who, Pete?

NZ is consistently ranked one of the top few easiest countries to do business, and yet all we hear from our champions of industry is whining about how hard it is. If anything’s hindering our economy it’s that sort of attitude while other nations get on with it.

“we also have problems with too much regulation” – compared with who, Pete?

Doesn’t matter who it’s compared to, it does matter compared to what’s reasonable for us. And compared to how things were. I can’t burn rubbish on my land without applying for and getting permission. I have to plan ahead and hope the weather fits in with the regulations.

Don’t know much about leaky homes but Australia also had an 87 crash and their commercial excesses prior to the crash were at least as baroque as ours. For every Judge Corp or Renouf Corp or BNZ they had their own usually much larger excesses. Two West Australians, Alan Bond and Laurie Connell (Rothwells Merchant Bank from memory), incinerated vast amounts of wealth. The Labour government of West Australia tried to become an investment player and their premier ended up in jail. Then there were companies like Adsteam and who could forget the State Bank of South Australia. The former journalist turned mogul Christopher Skase became a fugitive from justice and Elders head John Elliott spent much of the post 87 decade before the courts. Any fuck up we can make, they can do better. In later years they have had some wonderfully entertaining failures like One Tel and the jail terms for former insurance company head Rodney Adler. As for the finance company problems here I think you will find there were plenty of failures in OZ as well but they did not have the additional complication of our recession prior to the GFC. Regulation may have played a role but I suspect – because of the spread of failure across the sector – that it was more to do with general economic factors.

While we are at this analysis can we finally administer the last rites to the idea we are a classless society nation made up of chirpy egalitarians, a place where jack is as good as his master, everyone has a fair go and a man is judged entirely on his deeds and not his background? What a bitter joke that has become!

As Bryan Gould points out today http://www.bryangould.net/id166.html the sort of myths our media perpetrate and a majority of the population appear to believe in “can only be sustained in a society that is divided – where the well-off are comfortably shielded from the realities of life for the worse-off.”

Only maybe it is worse than that, maybe a shitload of new Zealanders now don’t give a flying fuck about third world diseases and child malnutrition in South Auckland, or high unemployment and youth suicide in Kawerau, or in the misery and poverty of the working poor, that invisible lumpenmass that cleans their offices and lavatories.

Maybe we have to accept that many (most?) New Zealanders just don’t care. Over twenty-five years they’ve absorbed the self-centred, self-righteous selfishness of Rogernomics into their DNA, they’ve got their man as PM and they will happily let the system work it’s slow buring Ruthanasia on the rest.

And Danyl, the 1987 Share Market Crash was caused by external factors. It affected the whole world, and while Labour’s policies might have failed to insulate New Zealand from its impact I think even under Muldoon it would have had a pretty major effect.

Sanctuary, what makes you think the mass not caring is something relative recent? Not so long ago most people wouldn’t have known much about the lives of others beyond their own village or suburb, let alone cared about them.

And on a scale of care, what about East Africa right now for example? It’s only an occasional news bite of starvation.

@ Pete George – I am old enough to remember when unemployment was a national scandal that led the TV news week after week after week. Now, it gets mentioned after the break, squeezed between something about a celebrity and a member of the deserving poor having their laptop stolen.

Yeah, I despair about what’s packaged as news too. The only nice thing about that singer who died recently was after six months of aftermath we won’t hear any more about their rehab of the week. But I’m sure there’ll be someone else to take their place. And another person on the street, and another person at home who has some vague connection with the story.

some half-wit would destroy several hundreds acres by having a rubbish burn off during a drought in the middle of February.

Closed fire seasons and common sense usually deal with that, but not always. Most damaging fires are arson or caused by carelessness on publlic or someone else’s land.

That was only one small example. Maybe I’m wrong, maybe they should just keep piling on the regulations and overheads just in case something might go wrong. Yeah, we should do what we can to prevent kids drowning in swimming pools, but we can have sections that back onto a river.

Lack of regulations, lack of policing, lack of expertise (design and build) and the marketing of new products and building systems all contributed to leaky homes. How far should regulations go?

You mention Northern Europe, but what of the Southern European welfare democracies. Would we want to emulate them at this time? It’s the Northern European nations which are the more economically liberal and as is argued in this paper Government Size and Growth: A Survey and Interpretation of the Evidence the Scandinavian nations compensate for the negative economic effects of high taxes through economic growth promoting market orientated policies in other areas. Market orientated policies which they pursued through the eighties and nineties.

Maybe I’m wrong, maybe they should just keep piling on the regulations and overheads just in case something might go wrong. Yeah, we should do what we can to prevent kids drowning in swimming pools, but we can have sections that back onto a river.

Like everyone else on the thread, I’m struggling to see how having to fence your swimming pool or get a permit to burn rubbish is preventing you from getting rich. That’s the explanatory gap you and Michael Hill have yet to bridge.

“The problem is when people mistakenly think that Sir Michael Hill’s expertise in setting up jewellery franchises means he knows anything whatsoever about macroeconomics.”

Err, regulation is microeconomics, effect of distortions on a firm or individual, costs of doing business, etc.

So, perhaps:
“The problem is when people mistakenly think that Danyl McLaughlin’s expertise in bioinformatics means he knows anything whatsoever about macroeconomics. Or microeconomics.”

These guys are trying to warn you: big business can deal with regulation, they have the economy of scale to have departments devoted to compliance (HR, Accounts, Legal, Planning). It is small business that is less able to cope with the demands of regulation. Witness the UK and the homogenisation of the High Street. Have you not wondered why things like Starbucks flourish?

“but instead of sustained economic growth, this reform led to catastrophic market failures like the ’87 share market collapse, leaky homes and the finance company debacle, all of which destroyed far more wealth than the deregulation created.”
Crikey, our GDP is less than in 1986!?
I might be wrong, but per capita GDP growth appears to be positive more than it is negative:

It even seems to be positive from 1984 (start of “wild” deregulation), until that crash of 1987!

Deregulation of building standards lead to leaky home, deregulation of airlines lead to… cheap flights.

The problem is when people mistakenly think that Danyl McLaughlin’s expertise in bioinformatics means he knows anything whatsoever about macroeconomics. Or microeconomics.

When the media start quoting him as if he knows any more than any other intelligent, relatively well informed man on the street, then you can complain. Until then, he’s as entitled to his opinions as you are, and the rest of us can decide to listen to either, neither or both of you.

“Eliminating excessive regulation, easing constrictions and freeing up the entrepreneurial spirit were regarded as essential to enabling wealth creation.”

What a great plan! It’s just like my simple plan to improve the country by getting rid of bad things and increasing funding for good things.

The headline pretty much sums it up: Clueless New Zealand Ministry of Economic Development Provides Regulatory Cover to Bogus Financial Companies. No messy regulatory red tape, online frictionless company registration, big welcome mat for scammers-r-us. Another victory for the free market! Perhaps this was exactly the kind of “freedom” Sir Michael Hill was seeking.

It think it’s a mistake to assume that those quoted really know what they’re talking about with respect to regulation — as the Herald story noted, in an international context New Zealand is very lightly regulated indeed.

What you’re hearing is just a boilerplate whine from people who have been surprised to discover that money has not relieved them of the usual obligations of citizenship. Actually, I’m not sure the thinking is even that sophisticated.

Owen Glenn’s view, IIRC, was that the gap between rich and poor wasn’t the super-rich’s fault, but perhaps the super-poor could take a look at themselves and see what they could improve. Perhaps after eating some cake, I think.

“Michael Hill, the jeweller, had to remove a sculpture from his garden, if that is the proper name for his 202 hectares. It was of swaying reeds and grasses, and everyone liked it, but officially it was a building and needed a resource consent. Hill said CivicCorp asked him to take it down because the colour was not allowed, it was on a hill and it was visible, the last indicating that they hadn’t quite grasped the point of sculpture.”

actually I think he’s being earnest, but one millionaire voluntarily paying more tax will make no difference to NZ’s bottom line so I don’t think he should pay any more than the government mandates. I think the government should take his advice and tax those that have more than enough rather than cutting back on services which are only just supporting those who do not…

Personally I find it refreshing to hear someone who makes in a month more than I make in a year not whingeing that they are suffering because of all the tax they pay on their big frickin incomes!

It think it’s a mistake to assume that those quoted really know what they’re talking about with respect to regulation — as the Herald story noted, in an international context New Zealand is very lightly regulated indeed.

It might well be, but it might also be a mistake to assume Danyl does. Someone who may be more authoritative could be Nobel-prize winning economist Ronald Coase.

Like everyone else on the thread, I’m struggling to see how having to fence your swimming pool or get a permit to burn rubbish is preventing you from getting rich. That’s the explanatory gap you and Michael Hill have yet to bridge.

If you take two facetious examples then you are not going to see. In the article Scratching By: How Government Creates Poverty as We Know it many examples are provided, from an American perspective, but many would be applicable to New Zealand, of how the government holds poor people back from getting ahead and making a living for themselves.

“But the one thing that the government and its managerial aid workers will never do is just get out of the way and let poor people do the things that poor people naturally do, and always have done, to scratch by.”

and I had an epiphany. All we need to do to eliminate poverty is to let the rich keep more of their money and stop giving the poor money. then they will be properly motivated to start multinational internet companies and become millionaires like the rest of us and when we’re all millionaires no one will be poor…

“But in a free market—a truly free market, where individual poor people are just as free as established formal-economy players to use their own property, their own labor, their own know-how, and the resources that are available to them—”

nothing but gold, that link QtR.

Do you know what? I just realised that I am just as free as Michael Hill to use my property, labour and resources, right now, in this socialist hellhole. It’s just that he haz a bigger resourcez and propertyz than I…

That’s wonderful argumentation there Trouble Man. You really make a compelling case. Unfortunately you probably didn’t get to the bit where the caring compassionate government evicted a 93 year old man from a van he was living in for ten years for violating local building codes after a human interest story about him was printed in the local paper.

and I had an epiphany. All we need to do to eliminate poverty is to let the rich keep more of their money and stop giving the poor money. then they will be properly motivated to start multinational internet companies and become millionaires like the rest of us and when we’re all millionaires no one will be poor…

a) what do you expect from the NBR, a treatise on the benefits of Collectivism in the Antipodes?
b) the Scandy democracies have large(r) economies (than NZ) and have oil wealth (Norway)
c) Australia has mineral wealth

The rich don’t like regulation unless it applies to the labour market. They squeal like stuck pigs if workers dare withdraw their labour and make sure their puppet governments tightly regulate us mere mortals to make sure we are not free to set our own price on our labour.

Tinakori, I can tell you with absolute certainty that Australian labour is significantly more regulated than New Zealand. They even have compulsory wage arbitration – the state tells you how much you must pay your employees.

If you are referring to employment laws, your statement is incorrect. If you are referring to unions, or health and safety regulation, you are also incorrect. It is true that New Zealand has the ACC, but this is both cheaper than and simpler than working out what insurance you must acquire to pay liabilities and lawyers should anything go wrong.

Perhaps you are thinking of another part of the regulatory landscape? Perhaps you can tell us what it is, and why it means that New Zealand has virtually no manufacturing sector and Australia does, or why it is holding back New Zealand, and if only we abolished these regulations all would improve.

For what it is worth, one example from today’s news about who is more successful (by one metric at least)…. Apparently,

According to yesterday’s daily statement from the U.S. Treasury, the US Federal government had an operating cash balance of $73.8 billion at the end of the day yesterday. By comparison, Apple’s last earnings report (PDF here) shows that the company had $76.2 billion in cash and marketable securities at the end of June.

“Globally poverty is declining as a result of economic liberalisation in places like China, Brazil, and India.”

I reckon it’s more a result of industrialised nations having outsourced their manufacturing sectors in order to save money on labour costs now suddenly finding themselves in debt to those very same outsource destinations because they have unproductive economies which basically just borrow to consume.

Not too mention the unregulated pollution and exploitation of the environment that take place in these countries as the west have outsourced all this as well to the detriment of everything on the planet.

unless you’ve got something that shows causation rather than just positive correlations I think you’ve got it twisted

I heard, on radio, that 80% of the wealth of the USA is owned by 5% of the population.

Is this correct?

I also heard, on radio, from NBR editor how beneficial the wealthy are to the rest of us.

Is this correct?

The Nats (and ACT) seemed determined to send us in the direction of the USA. Thought their pre election crapola was about sending us towards (and surpassing) Australia, has not been much noise about that recently It turns out our lousy wages benefit us by giving us an economic advantage, according to Bill English..

The super wealthy elite always control government actions to preserve their own privileged group. Ask Rupert Murdoch or Halliburton.

This may not occur in Russia or China where governments appear to be able to deal to uppity plutocrats that annoy the ruling party elite.

So do other Mafia type organizations.

Most of the wealthy do not want any of their income redistributed by any one else, including governments.

Ask any Arabian government.

All those business people wanting more freedom do so because they want to benefit the rest of us?

Aw, gee, I never realized they cared about the rest of us.

All those government regulations and taxes are unnecessary because the privileged few are going to look after the rest of us.

nommopilot – The causation comes from economic theory. The correlations are empirical substantiations of that theory.

On manufacturing if we take the US as an example, what we have seen is not a decrease in output nor productivity in manufacturing, but huge increase in output and productivity. To quote economist Donald Boudreux:

“Just before the current downturn — in 2008 — inflation-adjusted manufacturing output in the U.S. was 13 percent higher than it was in 2000, 52 percent higher than in 1990, 84 percent higher than in 1980, and 133 percent higher than in 1970.”

What has happened is a decrease in employment in manufacturing due to technological changes, and a decline in manufacturing as a share of GDP, but the latter is a global phenomenon it is part of our increasingly post-industrial society, and the rise in output with a decline in employment has happened elsewhere e.g., Sweden. The increased productivity and cheap goods from China has been a great benefit to people’s lives. It has meant great improvements in their standard of living asthe share of their income spend on food, clothing, etc has dropped and consumption incomes have increased.

Intellectuals like Christopher Hitchens are honest enough to admit that the socialist critique of capitalism has failed:

“Marx’s original insight about capitalism was that it was the most revolutionary and creative force ever to appear in human history. And though it brought with it enormous attendant dangers, [the revolutionary and creative nature] was the first thing to recognize about it. That is actually what the Manifesto is all about. As far as I know, no better summary of the beauty of capital has ever been written. … There is no longer a general socialist critique of capitalism – certainly not the sort of critique that proposes an alternative or a replacement. There just is not and one has to face the fact, and it seems to me further that it’s very unlikely, though not impossible, that it will again be the case in the future.”

Tinakori, you make a very strong claim that less regulation will increase the wealth of a nation. You say that. Many wealthier nations are far more regulated than NZ. In fact, NZ is among the most lightly regulated of all advanced economies. You make an argument from abstract general principles, but refuse to engage with specifics. Typical.

“Just before the current downturn — in 2008 — inflation-adjusted manufacturing output in the U.S. was 13 percent higher than it was in 2000, 52 percent higher than in 1990, 84 percent higher than in 1980, and 133 percent higher than in 1970.”

And the median real income was lower than they were in 2000. It has dropped lower again still. In fact, by 2008 median real wages had climbed only slightly above what they were in the mid 1970s, despite massive increases in productivity.

George D – Such income statistics don’t tell the full story of income. Consumption is a better measure. What is ignored if we just look at median real wages is the gain in living standards provided by access to cheaper goods. Even then we don’t see the increasing quality. But of course America and us can do better, a lot better. Then the argument comes back to means to achieve our desired ends, through the bottom up emergent order of the free market and a free and open society or through top down coercive institutions. I think that real world experience will tell us the former is the better path.

Clunking Fist @31 Deregulation of building standards lead to leaky home, deregulation of airlines lead to… cheap flights.

It depends on what is being regulated. The airline industry is highly regulated in terms of safety. That is why flying is so safe. Any suggestion of a technical/mechanical problem and planes all around the world are grounded. The need for airlines and related businesses to maximise profits is secondary to safety.

If we had the same approach to the construction industry we would ensure higher training standards of all people working in it – architects would be forced to prove competence in construction and weather tightness not just design, for example – we would have a lot more site observations and inspections, and everything would come to a halt at the slightest suggestion of anything less than best practice.

Sanctuary – I noticed you commented a couple of times on child malnutrition in South Auckland. I’m from South Auckland and one of my parents works in social services there. In the majority of cases I’ve seen, kids go hungry not due to the parents having insufficient money, but due to a combination of poor budgeting and spending on non-necessities (alcohol and gambling being the worst, but even stuff like Sky TV and entertainment systems). Rogernomics, scale of welfare etc. doesn’t have that much effect on this. Outlawing gambling and alcohol (probably not a long-term solution) and certainly better budgetary education is a much better way of ensuring kids get fed.

I do get really pissed off that a lot of comfortable well-off New Zealanders tend to stay in their ivory towers and fail to comprehend the magnitude of problems in places like South Auckland, so I agree with you there. In terms of egalitarian society, I do think we are ahead of countries like Britain: here we’ve got few social barriers to accomplishment (e.g. John Key was born in state housing, and isn’t looked down on because of it) but I agree the practical/environmental barriers can be huge.

In the majority of cases I’ve seen, kids go hungry not due to the parents having insufficient money, but due to a combination of poor budgeting and spending on non-necessities (alcohol and gambling being the worst, but even stuff like Sky TV and entertainment systems).

The poor resist the wonderful plans we think up for them because they do not share our faith that those plans work, or work as well as we claim. We shouldn’t forget, too, that other things may be more important in their lives than food…

This could explain why they focus on the here and now, on living their lives as pleasantly as possible and celebrating when occasion demands it.

We asked [poor African man] Oucha Mbarbk what he would do if he had more money. He said he would buy more food. Then we asked him what he would do if he had even more money. He said he would buy better-tasting food. We were starting to feel very bad for him and his family, when we noticed the TV and other high-tech gadgets. Why had he bought all these things if he felt the family did not have enough to eat? He laughed, and said, “Oh, but television is more important than food!”

In the majority of cases I’ve seen, kids go hungry not due to the parents having insufficient money, but due to a combination of poor budgeting and spending on non-necessities (alcohol and gambling being the worst, but even stuff like Sky TV and entertainment systems).

Yeah, but it’s a lot easier to fuck up big time. People’s situations are always a mix of structural factors and personal decisions. A society needs to be designed in such a way that certain bad decisions are harder to make (social engineering) that their impact is reduced (a strong welfare state) or that they suffer badly (the answer given by New Zealand’s right).

Entitlement levels in NZ are very much at the low end, and designed around the idea that there will be just enough. If you make mistakes then you’re screwed in ways that people on $600 or $1000 per week aren’t. Even working people hardly scrape by at the lower end. And who is to say they aren’t allowed beer, but you are? That’s not a world I would endorse.

James said: “To claim a mythical deregulation caused the leaky homes issue makes you look foolish.There was plenty of regulation about…I know as I was building at the time and the compliance shit was heavy.”

the regulation was notably less than it had been previously. Are you saying it’s just a coincidence that the the problems started when they loosened the regulation?

James, were you actually working in the building industry in 1991 when they deregulated it, or are you just assuming it wasn’t more highly regulated before the passing of the 1991 Building Act (which was heralded at the time as a new innovation that would allow architects and builders to use a much wider range of possible design solutions than before)?

The building act changes changed the regulation specifically (as I understand) about the materials and systems that could be used and it turned out the councils were clueless about them and how to monitor compliance + the manufacturers and suppliers were lying scumbags.

MeToo @65 It depends on what is being regulated. The need for airlines and related businesses to maximise profits is secondary to safety.
Absolutely. Although, do regulations actually cover design of aeroplanes? I am googling but can’t find much. Is it really left up to manufacturers and airlines to decide how to design & build aeroplanes, how long to keep a plane in service before retiring it (to the 3rd world?)?
CAA covers airport security & flight safety. Can someone in the industry let me know: what NZ laws (other than tort) and regulations cover plane design & maintenance? Otherwise planes could be less regulated than our buildings?

CF: Admittedly I very little about specific laws regarding the aviation industry here, but I’d guess that aircraft design and construction standards are likely based on those set by the governments of the US and the EU (ie. the places the planes are built). Our specific legislation focuses on operational matters like how many hours a pilot can work consecutively and what kind of training he/she needs to fly which kind of aircraft, etc. The medical standards required just to hold a private licence are unbelievably stringent; this only gets tougher once you start thinking of flying for hire.

Aviation is an industry which shows exactly why tough government regulation is important in some areas. Airlines and aircraft manufacturers have pretty sketchy safety records when left to their own devices.